x Abu Dhabi, UAEFriday 28 July 2017

An economic crisis is not force majeure

Confidence in the UAE's construction industry, and the economy at large, will not be restored by improperly invoking the 'force majeure' clause.

Donald Trump made news after defaulting on payments to the financiers of a 92-storey building in Chicago as the global financial crisis hit in 2008. Claiming Deutsche Bank had undermined the project, Mr Trump defended his failure to pay by invoking the loan's "force majeure" clause, alleging that "the world financial crisis is an extraordinary event". It was a valiant but desperate effort that ultimately failed. That hasn't stopped others from trying it, including some developers here in the UAE.

As The National reported this week, the builder of a delayed luxury development in Dubai has invoked the so-called "act of God" clause to refuse refunds to buyers. Shaikh Holdings last week informed owners in Sanctuary Falls, a collection of 96 villas under construction in Jumeirah Golf Estates, that the company was not liable for penalties for delays due to "force majeure", or unforeseen circumstances.

"Events have occurred that are outside our control and therefore we are not liable for any penalties in these circumstances," the developer said in a letter to owners. Shaikh Holdings is not alone. Michael Lunjevich, a partner with law firm Hadef & Partners, says the clause has become "the mechanism of choice for developers to justify a project on hold".

It goes without saying this is a dangerous precedent. Hurricanes are outside a developer's control. Construction delays caused by bureaucratic missteps are of a different nature all together. The actions of banks, lending and borrowing, and cash flow problems cannot be categorised in the same bracket as floods, earthquakes or volcanic eruptions.

While the global financial crisis has had a clear and crippling effect on businesses in every corner of the world, the force majeure excuse should not be used as a clause out of unfortunate turns in the business cycle.

When companies or individuals are looking for investment opportunities, they want to know that their money is safe and that the laws are clear. The UAE's reputation as an investment destination will be questioned, however, if developers find relief in a claim that limits their responsibility to contracts.